The Hare Versus The Tortoise

This is Ford country. On a quiet night, you can hear a Chevy rust. (The Chevrolet, a leading General Motors brand, is nicknamed Chevy)

In a Chevrolet, you go forward, not backward as in a Ford, retorted GM.

If the catchlines from the advertising campaigns are any indication, it is a battle that spares no punches. In market after market, be it in the US, Europe or Latin America, the two auto giants from Detroit $ 168.3 billion General Motors and the $ 146.9 billion Ford Motor Corporation have fought out many a bitter battle for supremacy.

And if there was a case for competitive paranoia, there is no better example than GM and Ford. Having spread their tentacles across car markets the world over, the two companies have built a formidable expertise to tackle a wide variety of market terrain. It is no surprise then that their hectic start-up activity resembles a well-oiled military operation.

 

The Indian market has been no exception. The stakes are high not just because it involves the gargantuan egos of two of the biggest corporations on this planet. With demand for cars reaching saturation point in the traditional markets of the West, the big car companies are now desperately seeking new buyers in emerging markets like India.

It is early days to pronounce winners. But a year and more into launch, there is certainly a clear pattern that is emerging in the manner these two players have unveiled their business strategies. It offers a fascinating insight into the minds of the two corporations and their contrasting views of the Indian market.

The story of the joust begins in mid-1994, when a worried lot of senior executives from the Ford Motor Company came down to India to explore a tie-up with Bajaj Auto. The team had every reason to be anxious. General Motors, their bete noire, had already chalked out an entry strategy for India.

General Motors India (GMI) had tied up with C K Birla group the previous year. Now it had started carrying out comprehensive studies to understand the under-developed India automobile market, dominated by just one company for the last 10 years: Maruti Udyog Limited.

Around the time Ford was visiting India, GMI was building a huge plant with an installed capacity of 40,000 cars in Halol, Gujarat. Ford was nowhere near beginning its innings in India, let alone rolling cars off an assembly facility.

As it turned out, the talks with Bajaj did not lead anywhere. Then someone suggested that Ford officials look up Mahindra & Mahindra (M&M) before taking their connecting flight out of Bombay. Now, M&M had strong links with Chrysler Corporation, the third biggest US auto company. Ford took the gamble anyhow, and met the Indian company.

The negotiations reached a successful conclusion in just a few months. In November 95, the two companies announced the formation of the JV, Mahindra Ford India Ltd (MFIL). (An angry Chrysler severed all ties with M&M and even asked them to stop using the Jeep brand name that they owned.) The stage was set for the face-off between the two mighty corporations.

The reconnaissance mission (In the mature US and European markets, GM and Ford were used to flooding the market with multifarious options catering to a splintering market. But as they went to emerging markets, they have had to grapple with a different set of dynamics. Both GM and Ford could have taken a lesson or two from Honda or Toyota, who typically customise cars for local market conditions. These cars are easier to produce but it would have considerably delayed the US companies entry into these markets. With the Koreans and Japanese aggressively muscling into India, speed was clearly of the essence.)

On the face of it, GM seemed to know exactly what it would have to do. It kicked off its mission with a few, precisely measured steps.

In 1994, Ronald Nardi was heading GMs operations in Egypt when he was told to pack his bags. He was given a new brief: get GMs business off the ground in India. Though GMI had tied up with a local company, a new factory was needed. The partner did not have the infrastructure to make technologically sophisticated cars.

His counterpart at Ford, John Parker, managing director of MFIL, came a little later into the picture, and he had a different set of problems to grapple with. In M&M, Ford had got a strong local partner for itself. Parkers task now was to press on with this advantage and gain some lost ground after Fords late start in India. Says Parker, Fords primary objective in the initial days was to take an early opportunity to develop the brand. (See box on the two start-up artists)

And as the two teams scanned the local market for entry opportunities, they realised that there was little room for manoeuvrability. Maruti Udyog, with its 800CC small car, and a mid-size, 1300CC petrol Esteem seemed to define and dominate the market.

In the small car segment, Maruti Suzuki, the Indo-Japanese car maker was untouchable, given its current volumes and scale of operations. Interestingly, neither GM nor Ford had nothing in their product portfolio to match the Maruti 800. The closest they came was with the Opel Corsa, or the Ford Fiesta, which was more or less on par with Zen, but with bigger engine options.

Both players realised that pricing was key to market creation in India and even the Corsa or the Fiesta would have needed considerable volumes to justify attractive price tags. They were thus ruled out as launch-pad models.

It was also obvious that for the launch vehicle, volumes would have to be sacrificed in favour of a mid-sized car. To build such a car, the only viable route was to import CKD units and assemble them in India, and use that opportunity to create a sales and service network.

At that moment, Esteem was the only comparable car in the market with a sizeable sales volume. (Though, Daewoo had begun to show signs of emerging as a fierce competitor.) But not only was the Esteem fuel efficient, it was available at very affordable price tag of Rs 5.5-6.5 lakh.

The key for GM and Ford was to craft an offering that stacked up favourably against the Esteem.

That wasnt easy. Nardi could choose from several GM models in Europe including the Vectra and Omega. (The choice had to come from Adam Opel AG, GMs European arm, because the American models were bigger and, therefore, more expensive. Besides, Opel was designated as the division in charge of emerging markets).

The Opel Astra offered several advantages to the team in India. It was the largest selling car in Europe for sometime now, and GMIs engineers were already familiar with the car. By then, the production techniques had been fine-tuned; a variety of body shapes and engines depending on the new markets requirements were available; the CKD kit sourcing was in place. All this would ensure that the time to market could be kept down to a minimum.

By the end of 1995, GM began to test the car among consumers through its clinics. Once the initial test clinic results reaffirmed that the Indian buyer preferred the test-box shape, Nardi began to breathe easy. By this time, his team had finished constructing the new plant at Halol. They were awaiting the green signal to start rolling the spanking new Opel Astra.

Meanwhile, at the third floor make-shift office at Mahindra Towers in Mumbai, the Ford team was scrambling to cut its time to market. They knew a greenfield plant would take as much as two years to complete. After exploring various options, the Ford team finally patched together an interim option with Mahindras.

To allow a faster roll-out of Ford Escort, it was decided to build a plant-within-a-plant at M&Ms Nasik facility. In return, Ford promised to train local Mahindra managers and upgrade their shop-floor skills.

The race to the market had begun.

Building the arsenal General Motors is a great believer in the mix-n-match principle so that it is able to offer never-before features in every new market. Ford, on the other hand, let the regional divisions offer their own versions of a model. But with the Ford 2000 programme, it is swiftly moving towards a single platform across markets.

As a new market war-horse, Astras brief was simply to cement GMs image as the maker of top quality cars. Explains an experienced GM watcher: This model is certainly not a money-spinner for them. It paves the way for other, volume-oriented cars that the company may choose to build in the future.

Though he was convinced of the business plan, Nardi knew that it wouldnt take long for other players to latch onto the same entry strategy.

Sure enough, at MFIL, Parkers team had readied much the same gameplan. They chose the Ford Escort as its launch-pad model. This car, chosen from the Ford Europe stable, was not far behind Opel Astra in sales. In select markets like UK, it was infact the largest selling car.

Each player had showed his hand. They were going to the Indian customer with similar cars. Who would present his case better?

Nardi chalked out an unconventional strategy for Astra. He positioned the Opel Astra as the costliest car in its segment. In the mid-size market dominated by the Rs 5.5-6.5 lakh Maruti Esteem, Astra was hoisted at Rs 8.5 lakh.

All the elements of marketing were carefully aligned around Astra as a precision engineered car from a German company called Opel. The choice of a German connection had a sound logic. Jairaj Jathar, a manager with ORG-MARG who has tracked the automobile industry for the last seven years, describes GMIs thinking: Indians think highly of German engineering. The Mercedes Benz is the ultimate aspirational car for them. Therein lay the opportunity to position Opel Astra as the second best alternative to the Merc. It was a risky move. Opel was a relatively brand unknown in India. Establishing its credentials as a car maker was not going to be easy.

There was an added risk. The company decided to offer the Astra in only one configuration one engine option with a more powerful, 1600 CC petrol unit.

Says Richard Swando, who has recently taken over from Ronald Nardi as the president and CEO, GMI: In India, we found that a very high proportion of customers took their new cars to accessories shops to add more features. To enhance satisfaction levels, we decided to offer one model only but with a full complement of features.

Having shifted to a new office at Annasalai in Chennai, Parker too wasnt unduly preoccupied with cash flows from his first car. He knew that a launch-pad vehicle which didnt click in the market would have disastrous consequences for Fords future business. It was imperative that they got the product, packaging and marketing mix right the first time.

Fords response was a classical hedging strategy. MFIL launched four options on the Ford Escort. The Escort came in both diesel and petrol versions with standard and deluxe versions. The 1300CC petrol version, with better fuel efficiency, has pitched against the Esteem, the benchmark car. The diesel option was included to tap the latent demand for diesel vehicles in India. Wary of positioning the Escort as a premium car, Parker preferred a more pragmatic approach. In the end, the Escort was positioned as an affordable luxury.

It wasnt a big deviation from what Ford did elsewhere. Parker maintains that Ford always entered new markets with a lower-end and a higher-end model. Says he, When our partners advised us that the Indian customer was strongly diesel-oriented, we decided to include a diesel version as well. (As it turned out, the diesel car may have prevented the JV from a virtual wipe-out in the market.)

A call to arms (Once it evolves its battle plan, General Motors is known to maintain a steady course, and it rarely deviates from its roll-out plan. Around the time of launch, it is also a master at creating hype and a sense of anticipation around its models. Ford, on the other hand, prefers a decidedly low-key approach, keeping its ears close to the ground. It often quickly fine-tunes its product based on market feedback.)

It was almost as if the floodgates had been opened. Between December 1996, when the Astra was formally launched in Mumbai, and the following June, 12,000 bookings had been made. On the ground, Nardis team lost no time in expanding the sales and service network, which swelled to 25 dealers outlets in 22 cities.

At the same time, GMI took great pains to manage perceptions as a premium car maker. Among various other things, Nardis marketing team tied up with a slew of marketers of premium goods like Van Heusen and Titan Insignia for joint promotions.

Parker and his team was facing a very different situation. They had been quick off the ground to roll-out the first Ford car from the Nasik plant in August 1996, just two months after GM put out its first Opel Astra in India. The bookings on Escorts were also euphoric, but it soon became evident to the senior team at MFIL that the response to the 1300CC petrol car was lackadaisical.

Word spread around that the petrol version was under-powered. Today a rueful Parker remarks: We think the car is more than adequately powered for driving in cities like Delhi and Mumbai. But some motoring testers thought otherwise. So we decided to take that feedback, and concentrate on the diesel version.

With 70 per cent of the buyers demanding the diesel car, stocks of petrol cars were piling up at the Nasik plant.Parker used the occasion of 50 years of Independence celebrations to introduce a cleverly masked discount offer. Placing Freedom badges and lopping off Rs one lakh from the price tag, the company managed to push out nearly 400 cars, mostly the petrol version.

Not that GM did not have any problems. In the beginning of 1997, it launched the all-new Astra with minor improvements. But by the middle of the year, it quietly pushed through a change in the engine and transmission. The

official version was that it was a preventive measure since the

engineers thought that the new engine was better suited for Indian conditions.

Today, MFIL is much like a cheetah thats suddenly discovered its prey. Despite the petrol fiasco, the buyers seem to have taken to the launch car. In the recently released, JD Power Initial Quality and Customer Satisfaction surveys, it came ahead of others, including the Astra.

In the coming months, Parker says his focus will be on the diesel car with more than two-thirds of the production earmarked for it. And while the diesel car holds the ground for him, an all new 1600CC petrol car will be launched in the first quarter of the new year.

The company claims it will invest another Rs 1,500 crore in the next 3 years, and by 1999, Parker wants to launch a smaller car, based on the best selling Fiesta and codenamed C 195.

Remarks an analyst who tracks auto industry, Ford may have been fortunate in some ways, but it has also been nimble-footed. So, even as the Nasik assembly plant was completed, Ford had identified a site in Tamil Nadu, at Maraimalainagar, 40 km from Chennai, for a brand new plant to produce its future models.

GM, on the other hand, has curiously gone into a huddle. Last month, in the mid-sized car sweepstakes, it was behind Esteem, knocking off Cielo from the number two slot. But an inexplicable ennui seems to surround GMIs operation in India today. Though the Astra was launched in December 1996, the first roll-out took a further full six months, allowing MFIL to catch up.

While GM dealers have been demanding a diesel version for sometime now, the 1700CC

turbo-diesel is still undergoing extensive tests. When Jack Smith, the GM supremo, visited India recently, it was widely expected that he will announce future investment plans. That never happened. A thick veil of secrecy surrounds GMIs plans to launch new models. Future investments, says Swando, will be based on business case analyses.

Some of GMs leaden-footedness is understandable, given that it is hampered by its partners inability to bring in new funds for further expansion. While GMs Astra has a definite edge in the market today, the momentum seems to be behind the Ford Escort.